News: SYR Auto File: Tesla fights the headwinds.

Joe White Global Autos Correspondent

Greetings from the Motor City! Remember when auto industry CEOs were telling investors that 2022 would be a year of strong profits and supply chain healing? So January. Now, during the next few days, we'll find out if any of them are bold enough to repeat those outlooks, starting today with Tesla's Technoking Elon Musk. You can place your bets. Today, all eyes are on Tesla's Q1, we also have electric vehicle demand breaking free of battery costs and McKinsey warning about the charging gap. Here we go -

Tesla's Q1: Leaning into the storm The world's most valuable automaker will lead the way https://www.reuters.com/business/autos-transportation/tesla-earnings-under-pressure-shanghai-factory-halt-2022-04-19 as the industry's big powers start reporting first quarter results - and more importantly for investors, deliver their latest takes on the nervous consumer market and the supply chain forever war. The headwinds for Tesla - and every auto manufacturer - have kicked up substantially since January's Q4 investor calls, thanks to rising interest rates, the war in Ukraine https://www.reuters.com/business/autos-transportation/volkswagen-focuses-regions-reduce-supply-chain-vulnerability-2022-04-19 and higher prices for everything. Automakers blame supply chain snarls for obscuring strong underlying demand. But the sales numbers you can see from major markets are worrisome. European auto sales fell nearly 19% in March. https://www.reuters.com/world/europe/european-car-sales-dip-ninth-consecutive-month-march-acea-2022-04-20 U.S. auto sales are running at a recession-level pace and sales are slowing in China. https://www.reuters.com/business/autos-transportation/china-vehicle-sales-fall-117-march-after-2-months-increase-2022-04-11 Tesla has done a better job than many rivals at keeping production rolling through the supply chain disruptions. But Shanghai's COVID lockdowns kept its largest assembly plant idle for three weeks https://www.reuters.com/business/autos-transportation/tesla-resumes-production-shanghai-factory-xinhua-reports-2022-04-19 until Monday. Investors will be listening for any hint that Elon Musk is backing away from his earlier goal of 50% year-over-year growth - roughly translated as producing 1.4 million Teslas globally for the year. Of course, Musk may also talk about his takeover bid for Twitter https://www.reuters.com/technology/elon-musk-invest-up-15-bln-his-own-money-buy-twitter-nypost-2022-04-19. Or whether he intends to get into the lithium mining business https://www.reuters.com/business/musks-tweets-fuel-mining-industrys-hopes-buyout-by-tesla-2022-04-19. Or the progress on Tesla's humanoid robot project https://www.reuters.com/technology/musks-bets-tesla-no-human-drivers-this-year-robots-next-2022-01-27. Or the latest timetable for the launch of Tesla's "Full Self Driving" system (all topics of interest to investors who've filed questions on the company's investor site.) Musk's conflicts with regulators will be in the background. Tesla on Tuesday asked a California state judge to pause a state agency's lawsuit charging the company tolerated widespread racial discrimination. Tune in here https://ir.tesla.com/#tab-quarterly-disclosure at 5:30 EDT - more or less. After all, it is 4/20.

Has EV demand broken the battery cost barrier? High volume sales of electric vehicles won't take off until battery costs reach parity with combustion engines - a benchmark put at roughly $100 per kilowatt-hour. That has been an auto industry axiom - until now. Because in the real world, demand for electric vehicles is surging even though battery costs are not at the magic parity number https://www.reuters.com/business/autos-transportation/soaring-battery-costs-fail-cool-electric-vehicle-sales-2022-04-19, and at least in the near term are moving further from it as raw materials prices rise. (More on that below.) One case in point: Ford's Mustang Mach-E which is now sold out https://www.ford.com/suvs/mach-e for the remainder of the 2022 model year, according to Ford's website. Global EV sales are up 120% during the first quarter, even as EV manufacturers are imposing double-digit percentage price hikes to offset battery materials cost spikes. Overall, electric vehicles accounted for about 9% of global vehicle sales https://www.iea.org/commentaries/electric-cars-fend-off-supply-challenges-to-more-than-double-global-sales in 2021, but in China EVs are "going viral" and now capturing more than 20% of the market https://www.alixpartners.com/insights-impact/insights/have-new-energy-vehicles-gone-viral-in-china, according to AlixPartners. Chinese consumers are buying thousands of ultra-cheap, electric mini-cars that wouldn't cut it on U.S. freeways, but are adequate for low speed adventures in China's congested mega-cities. The U.S. Government is back in the car business The U.S. Department of Energy has made its first loan in ten years https://www.reuters.com/business/energy/syrah-resources-gets-107-mln-us-loan-louisiana-ev-battery-plant-2022-04-19 to a clean vehicle business, awarding $107 million to Australian company Syrah Resources to build a battery graphite processing plant in Louisiana, with Tesla as a major customer. The DOE's Advanced Technology Vehicle Manufacturing (ATVM) program has nearly $18 billion in lending capacity https://www.energy.gov/lpo/products-services/advanced-technology-vehicles-manufacturing-loan-program, but it has been largely dormant. Now, the ATVM is being used as a tool in a broader effort by the Biden Administration to secure U.S. capacity to produce batteries and battery raw materials. As EV sales rise, analysts and industry executives are warning of a looming shortage of battery capacity https://electrek.co/2022/04/18/rivian-ceo-warns-battery-shortage-vs-chip-supply exacerbated by tight supplies of lithium, cobalt, nickel and rare earth minerals. Battery security is not just a U.S. issue: German EV motor maker Schaeffler announced a deal to secure rare earths for magnets from Norway. https://www.reuters.com/business/autos-transportation/ev-parts-maker-schaeffler-signs-first-kind-european-rare-earth-deal-2022-04-19 ATVM program chief Jigar Shah is encouraging applicants, but with a caveat: "The vast majority of applicants aren't ready," Shah told Reuters. "We need all of our questions answered to be able to process a loan." Translation: No more Solyndras. https://www.energy.gov/key-facts-solyndra-solar Mind the Charging Gap The United States would need to expand the number of public and private EV chargers by 20 times the current population to support a hypothetical 2030 world where half the new vehicles sold run on batteries, according to a new study by consultants at McKinsey. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/building-the-electric-vehicle-charging-infrastructure-america-needs The McKinsey math puts the cost for the charging stations required at more than $95 billion. The Biden Administration has set aside $7.5 billion in its infrastructure bill to provide for EV charging. McKinsey also notes that right now, public chargers tend to be located in high-income zip codes, and it can cost a driver five to ten times more to charge at a public station than at home. A banker's key indicator What are bankers who lend to consumers and auto dealers watching to make sense of the U.S. auto market? Chase Auto chief executive Peter Muriungi tells Auto File "the key variable for the industry… is the speed at which manufacturing of cars will keep up with demand." The pace of production of new vehicles will determine "how quickly used car values will correct. We are being very disciplined about watching those indicators." Muriungi says Chase expects used vehicle values to fall significantly from current levels by the end of 2023.

Conti's Russian dilemma German tiremaker Continental said it restarted production at a factory in Russia https://www.reuters.com/business/autos-transportation/continental-restarts-tyre-making-russian-plant-protect-workers-2022-04-19 because its employees there could face criminal charges if it did not. Conti is not alone facing risks whether it stays in Russia or leaves. https://www.reuters.com/business/western-companies-wrestle-with-russia-half-exits-2022-03-18 Stellantis this week said it “suspended” operations at a van assembly plant in Russia, but continues to pay workers.

A swarm of Tesla fighters This is a big week for new competitors to Tesla's lineup. Mercedes officially unveiled its EQS electric SUV https://www.reuters.com/business/autos-transportation/mercedes-benz-launches-second-all-electric-suv-2022-04-19,

a large, technology-laden vehicle aimed directly at the falcon wing side doors of the Tesla Model X - the weakest link in Tesla's lineup. Price: Likely $100,000 +. BMW launched its electric 7-series https://www.reuters.com/article/bmw-autos-premiere-idUSKCN2MC100

• Achtung, Model S! Lexus revealed its first all-electric model https://www.lexus.com/future/RZ, the RZ450e, aka the Lexus DBMY - Don't Buy a Model Y. Meanwhile, Ferrari debuted a gorgeous 296 GTS convertible https://www.reuters.com/business/autos-transportation/ferrari-launches-296-gts-convertible-hybrid-model-2022-04-19 with a gas-electric hybrid powertrain. Not fully electric, but who cares?